The Hindu Business Line : A different take on price rise

The rise in the rate of inflation in India has hitherto been viewed as the effect of global recessionary forces, high prices of crude and agricultural and industrial products in global markets and the complacency shown by the Government in taking timely pre-emptive action. Can there be another take on it?

India’s economy, because of the size of its domestic market, well-oiled distributive and regulatory mechanisms and the generally well-conceived fiscal, monetary and reform-oriented planks of policy framework, has by and large been insulated from the rest of the world. The most impressive example relates to the South Asian currency meltdown of 10 years ago. Supply management has no doubt been wanting but not to the extent of giving such a conspicuous push to prices.

It will be impolitic, therefore, to attribute the current predicament in any substantial measure to the impact of global trends on the domestic price situation or the want of efforts to maintain supplies of essential articles of consumption. In any case, it will soon be clear how the prescriptions that the Government has come out with based on this diagnosis are going to unravel.

Putting trust on the customary remedies alone to stop prices from moving North, might, in the absence of a differential diagnosis, lead to frustration. There are enough pointers to suggest that India is heading for a high-cost economy, even while there are no obvious shortages in any sector.

Luxurious lifestyles

Let us look at the factors with an open mind. The 350 million strong upwardly mobile denizens of India — a number larger than the population of the European Union or the US — are bubbling with zeal to make up for lost time in catching up with the lush and luxurious lifestyles after which they have been hankering. The earnings of this particular segment, comprising the governing classes, the salaried fat-cats, corporate highfliers, business bigwigs, software professionals, real-estate owners and dealers and their progeny, relatives, hangers-on and cohorts have been growing by leaps and bounds.

The amount paid in bribes alone has been estimated by Transparency International at Rs 21,068 crore, and this may well turn out to be an understatement. As regards the amount of black money sloshing about in India and abroad, whatever astronomical figure one imagines is bound to be correct.

Even if vegetables are available aplenty, it matters little to these classes of people whether they buy them at Rs 20 or Rs 80 a kilo. Plumbers may not be in short supply, but why should they think twice if they can get away with demanding Rs 200 for a job which would have ordinarily fetched Rs 50?

Rents have similarly sky-rocketed, not so much because space is limited as because there are people prepared to pay twice or thrice the normal rate for the asking. At whatever rate, however high, a transaction is concluded, that becomes the benchmark for all other transactions of a like nature that follow.

Already a cup of coffee is charged at Rs 250 at some posh hotels, and it may not be long for it to cost Rs 50 or more at the friendly neighbourhood coffee shop as well, when, after all, the quality is just about the same.

The phenomenon we are witnessing is the trickle down effect of too much money in the hands of classes of people who, in a sense, constitute the driver of prices and who set the tone for buying and selling.

With the strides India is making towards prosperity, it is inevitable that more and more money and purchasing power will be in the hands of more and more of the people at large, with globalisation leading to equalisation of costs and prices everywhere.

B. S. RAGHAVAN